Yajnesh Rai

Debt-to-Income Ratio Matters When You’re Buying a House

Your debt-to-income ratio plays a large role in whether you’re ready and able to qualify for a mortgage. This figure, the percentage of your income that goes toward paying your monthly debts, helps lenders figure out how big a monthly mortgage payment you can handle. It’s as important as your credit score and job stability, if not more so.

Lenders calculate your debt-to-income ratio by dividing your monthly debt obligations by your pretax, or gross, income. Most lenders look for a ratio of 36% or less, though there are exceptions, which we’ll get into below.

This ratio, known in the mortgage industry as a DTI, helps you answer the question, “How much house can I afford?” and is a useful guide for mortgage lenders trying to figure out how much you can borrow. But your DTI is not the whole story — it leaves out unavoidable monthly expenses such as food, utilities, transportation costs and health insurance, among others. It’s important to keep those obligations in mind as you evaluate your ability to afford a home.

Here’s how DTIs work.

Two types of ratios

There are two kinds of debt-to-income ratio:

• The front-end ratio, also known as a household ratio, is the dollar amount of your home-related expenses — your proposed monthly mortgage, property tax, insurance and homeowners association fees — divided by your monthly gross income.
• The back-end ratio includes all the other debts you pay each month — such as credit cards, student loans, personal loans and car loans — in addition to proposed household expenses. Back-end ratios tend to be slightly higher, since they take into account all of your monthly debt obligations.

Which one matters more?

While mortgage lenders typically look at both types of DTI, the back-end ratio often holds more sway because it takes into account your entire debt load.

Lenders tend to focus on the back-end ratio for conventional mortgages, loans that are offered by banks or online mortgage lenders rather than a government program. If your front-end DTI is below 28%, that’s great. If your back-end DTI is below 36%, that’s even better.

When you’re applying for a nonconventional mortgage, like an FHA loan, lenders will look at both ratios and will consider DTIs that are higher than those required for a conventional mortgage: up to 31% for the front end and 43% for the back end. Sometimes lenders will even allow the ratios to go slightly higher.

Ideally, though, you’ll want DTIs that are as low as possible, regardless of the lender’s limits. A lower DTI will help your credit score, which will in turn allow you to get a lower mortgage interest rate.

Think beyond your DTIs

Although DTIs are important in getting a mortgage, they’re not enough when it comes to helping you figure out what you can afford, says Ira Rheingold, executive director of the National Association of Consumer Advocates.

“You can have these general guidelines around debt-to-income ratio,” he says, “but the bigger question is, will you, once you have that mortgage payment, have sufficient money to make ends meet?”

Since DTIs don’t take into account expenses such as food, health insurance, utilities, gasoline and entertainment, you’ll want to budget beyond what your DTI labels “affordable.” Aiming below the 36% back-end target is ideal.

This is especially important since your DTIs count your income before taxes, not what you actually take home each month.

How to lower your DTI

The higher your DTI, the more likely you are to struggle to make your monthly mortgage payments. You’ll want to lower your DTI not just to qualify for a mortgage and buy the home you want, but also to ensure you’re able to pay all your debts and live comfortably at the same time.

There are several ways to lower your debt-to-income ratio:

• Avoid taking on more debt.
• Don’t make any big purchases on credit before you buy a home.
• Try to pay off as much of your current debt as possible before you apply for a mortgage.

“The best thing homebuyers can do is pay down or pay off high-interest credit card and consumer debt,” says Chris Hiestand, director of marketing at Lenda, an online lending company. “Doing this will improve the back-end ratio and will also boost their credit score. DTI ratios actually don’t impact the mortgage interest rate, but credit scores have a big impact on interest rates.”

While a pay raise at work is another way to lower your DTI, it’s not safe to rely on something that might not happen. That’s why it’s better to avoid taking on more debt and work on whittling down the debt you have.

In most cases, lenders won’t include installment debts like car or student loan payments as part of your DTI if you have just a few months left to pay them off.

One last point

If your debt-to-income ratio is exceptionally high — say 50% or more — you probably should wait on a home purchase.

“There’s nothing wrong with saying, ‘I need to wait another year before I buy a house,’” Rheingold says. He suggests getting your finances in order first so that you present yourself as someone with good credit and not a lot of overhanging debt.

Before you sit down with a lender, using a home loan calculator is one way to figure out how much house you can afford.

The lower your debt-to-income ratio, the safer you are to lenders — and the better your finances will be.

Why buy apartments when you can buy two single family like units on an independent lot with spacious yards? Excellent rental return with potential for continuous upside in Fremont’s high demand I-880-Decoto-CA84 commuter friendly corridor. Located in Union City.

 

2 spacious units in a duplex with lots of Natural Lights and Storage:

1. Unit 1: 2BR/1BA (~1200 sq. ft.) Independent Unit with Attached Garage and Yard; Current Rent: $2480
2. Unit 2: 2BR/1BA (~1000 sq. ft.) Independent Unit with Attached Garage and Yard; Current Rent: $2250

Additional features: Washer/dryer, cooking range and refrigerator in both units

Great location for commuters whether you take BART, work in Fremont or drive to Palo Alto, Mountain View, Sunnyvale, San Mateo, San Jose, etc.

1. 14 mins walk to the Union City BART station
2. 5 mins to 880
3. 5 mins to 84-W (Dumbarton)
4. 5 mins to 84-E Niles Canyon Road to Dublin/Pleasanton/San Ramon
5. 10 mins walk to Safeway and Marina anchored shopping complex, and lot of great restaurants
6. 5 mins from Quarry Lake Regional Park
• http://www.ebparks.org/parks/quarry_lakes http://www.niles.org/ http://www.ncry.org/
7. 10 mins from both Newpark Mall and Union Landing Shopping and Cinemas
8. 5 mins to Fremont’s Historic Niles Town (Charlie Chaplin Studio and Niles Railway)
• www.ncry.org/
• http://nilesfilmmuseum.org/
• Restaurants – http://www.yelp.com/biz/the-vine-fremont; http://www.yelp.com/biz/devout-coffee-fremont

Off Market, Offered at $889,000.

Contact me for more pictures, address and questions. Please pass it to any potential buyers.

Yajnesh Rai, Real Estate Consultant

Keller Williams Realty – Silicon Valley

408-547-7845

YRai@KW.com

 

The 20 Hottest Housing Markets for May 2016 | Realtor Magazine

California continues to dominate the list of the hottest housing markets in the country, but a few surprises are sneaking in this month. Realtor.com®’s list ranks the busiest and most in-demand real estate markets in medium-to-large metro areas.

Notably, Colorado – with Denver and Colorado Springs – is maintaining a strong hold within the top 20 list while Detroit and Ann Arbor in Michigan re-emerged this month.

“It’s a very affordable market now, benefiting from economic growth and a bit of renaissance,” says Jonathan Smoke, realtor.com®’s chief economist.

Taking into account median days on the market and listing views on realtor.com®, the real estate site reports the following 20 real estate markets are the ones to watch right now:  

1. Vallejo, Calif.
2. San Francisco
3. Denver
4. Santa Rosa, Calif.
5. Stockton, Calif.
6. Dallas
7. Sacramento, Calif.
8. San Diego
9. San Jose, Calif.
10. Columbus, Ohio
11. Ann Arbor, Mich.
12. Kennewick, Wash.
13. Colorado Springs, Colo.
14. Fort Wayne, Ind.
15. Santa Cruz, Calif.
16. Eureka, Calif.
17. Boston
18. Modesto, Calif.
19. Detroit
20. Raleigh, N.C.

Banks Rush to Offer 3% Down Payment Loans | Realtor Magazine

As some banks veer from Federal Housing Administration loans, they’re offering their own low down payment mortgages to appeal to home shoppers struggling to save enough to buy a home. Wells Fargo made headlines this week when it debuted its 3 percent down payment loan.

JPMorgan Chase also announced its offering called the “Standard Agency 97%” program, a 3 percent down payment loan geared for first-time home buyers and requires a FICO score of 680. Chase also has a loan program called “DreaMaker Mortgage,” which offers a 5 percent down payment – 3 percent of which can come from the borrower as well as flexible funding options for closing costs and reduced mortgage insurance requirements.

Other banks have recently announced their low down payment offerings. Earlier this year, Bank of America began offering a 3 percent down payment loan that did not involve the Federal Housing Administration and does not require mortgage insurance. The bank requires a minimum FICO score of 660.

Wells Fargo’s newly launching lending program, “yourFirstMortgage,” requires a 620 FICO minimum score and minimum down payment of 3 percent for a fixed-rate conventional mortgage of up to $417,000. Down payment assistance also can come from gifts and community assistance programs. Customers who complete a homebuyer education course can earn a 1/8 percent interest rate reduction, although the course is not required.

Brad Blackwell, executive vice president and portfolio business manager at Wells Fargo, says the monthly payment for the loan will be less than a government-insured FHA loan.

“We’ve taken all the complexity of the home mortgage lending process, removed it from the front-line consumer, so that it’s easy for them to understand and Wells Fargo is taking care of all the capital markets and other types of complexities behind the scenes,” says Blackwell.

Bank giants have been leery of FHA loans lately, with JPMorgan Chase CEO Jamie Dimon’s calling FHA lending “too costly and too risky” to pursue extensively.

“We have dramatically reduced FHA originations,” Dimon wrote in his yearly letter to shareholders. “Currently, it simply is too costly and too risky to originate these kinds of mortgages. Part of the risk comes from the penalties that the government charges if you make a mistake – and part of the risk is because these types of mortgages default frequently.”

Dimon acknowledges Chase’s new low down payment lending program also carries some of those risks, but he believes it responds to customers’ needs.

“Mortgages are important to our customers,” Dimon wrote in the letter. “For most of our customers, their home is the single largest purchase they will make in their lifetime. More than that, it is an emotional purchase – it is where they are getting their start, raising a family, or maybe spending their retirement years. As a bank that wants to build lifelong relationships with its customers, we want to be there for them at life’s most critical junctures.”

Pending Sales Soar to Highest Level in Decade | Realtor Magazine

Contract signings for home purchases rose for the third consecutive month, with upticks in the South and West regions of the country providing the bulk of the increase, according to the latest NAR’s latest Pending Home Sales Index.

Overall, the index climbed 5.1 percent month-over-month in April to a 116.3 reading. The index is now 4.6 percent higher than a year ago.

“The ability to sign a contract on a home is slightly exceeding expectations this spring even with the affordability stresses and inventory squeezes affecting buyers in a number of markets,” says Lawrence Yun, NAR’s chief economist. “The building momentum from the over 14 million jobs created since 2010 and the prospect of facing higher rents and mortgage rates down the road appear to be bringing more interested buyers into the market.” 

Mortgage rates have remained below 4 percent in 16 of the past 17 months, a boon to home buyers. Yun predicts that rates for home purchases will continue to hover around 4 percent in the coming months, but he cautions inflation could potentially cause rates to jump suddenly.

“Even if rates rise soon, sales have legs for further expansion this summer if housing supply increases enough to give buyers an adequate number of affordable choices during their search,” Yun says.

The Midwest was the only major region of the country to see contract activity slip in April, albeit slightly. Here’s a closer look at how pending home sales fared across the country last month:

• Northeast: pending home sales rose 1.2 percent to 98.2 in April, and are now 10.1 percent above a year ago.
• Midwest: pending home sales dropped slightly by 0.6 percent to 112.9 in April, but are still 2 percent above April 2015.
• South: pending home sales increased 6.8 percent to an index of 133.9 in April, and are 5.1 percent higher than last April.
• West: pending home sales rose 11.4 percent in April to 106.2, and are now 2.8 percent above a year ago.

The Buyers Are Coming | Realtor Magazine

Mortgage rates may have inched up slightly but that didn’t seem to deter home buyers from shopping for a loan last week. Mortgage application volume rose 2.3 percent week-over-week on a seasonally adjusted basis, driven by an uptick in home purchase applications, the Mortgage Bankers Association reports. Mortgage applications are nearly 24 percent higher than they were a year ago.

After a short dip, mortgage applications for home purchases reversed course last week and rose 5 percent. Purchase applications are 17 percent higher than a year ago.

“Purchase applications got back on track last week, resuming the level of activity observed throughout most of April and May,” says Lynn Fisher, MBA vice president of research and economics. MBA also reported that the average loan size for purchase applications rose to a survey high last week, reaching $307,700.

Meanwhile, applications for refinancings mostly held flat last week, budging just 0.4 percent during the week. MBA reports the average on a 30-year fixed-rate mortgage rose to 3.85 percent last week, up from 3.82 percent the prior week.

4 Staging Tips to Up Your Listing’s Appeal | Realtor Magazine

The house has been cleaned from corner to corner, but now it may just need a few more finishing touches. Here are a few less-obvious, inexpensive ideas for staging your listing:

1. Repaint the walls. Of course painting isn’t anything new when it comes to staging, but focusing on repainting to match the wall and drapery colors can give the illusion of more space, especially if you repaint in a neutral hue. This gives the space an unbroken appearance an can make the décor look more smooth.

2. Reimagine awkward spaces. An empty spot under the stairs? Stage it with a table to show a small nook for organization. Take advantage of odd, small nooks in the home and turn them into reading corners, a small office space, or use built-in shelves to offer up more organization.

3. Swap out the bathroom towels. Buy luxe, fluffy towels in white. It’ll help give the restrooms more of a spa treatment.

4. Use mirrors strategically. In a cramped space, hang a mirror so that it reflects the light and gives the feeling of a more spacious area. In a dark room, hang a mirror to lighten up a space too.

Staging Your Home To Sell Fast

    What do all the professional realtors and home flippers from HGTV have in common? They use staging when they put a house on the market. Every time; every single time. Why? Because staging works. According to an article by the Kansas City Star, home staging is one of the primary factors for ensuring a home sells fast, and for top dollar. A professional stager in the Kansas City area says, “If all things are equal and you go see three to seven homes in the same price range, with the same square footage and location, the shiniest penny is what’s going to sell.”

    Home staging allows homeowners to show their properties in the best light, drawing potential buyers’ attention to the things they want highlighted and away from the things they don’t. Experts say that staging a home helps buyers envision what a space can be, and it may help them imagine themselves living there.

    When a home is vacant, staging warms up the space, making it feel more like a home instead of an empty shell. In such a state, stagers can work with a blank canvas. The bigger challenge can come with homes that are occupied. It’s often both difficult and emotional for homeowners to stop living in their homes long before they’ve moved out. Kathy West, the owner of Details Home Staging says, “It’s not uncommon for us to tell sellers to pack up half of their house, especially for people who have been in their homes more than five years because of all the stuff that tends to accumulate.”

    If hiring a stager isn’t an option for you, there are some home staging tips you can use to ensure you sell your home fast, and for as much money as possible.

    First of all, declutter. Less is more, as they say. Get rid of things you don’t need, pack things away if possible, and make your house look as much like a model home as you can. Buyers need to see the potential of your space, not your stack of junk mail or your collection of old newspapers. Also, clear out closets, creating bare space that will create the illusion of extra space.

    Next, clean. Scrub everything down. A top to bottom scrub down will paint your home in the best possible light and make viewers feel the care you’ve put into the place. Plus, a good cleaning will help to eliminate hidden odors and other buyer turn-offs.

    Neutralize, paint colors that is. If you’ve painted every room in your home a different color of the rainbow, it’s time to tone it down. Neutral paint colors appeal to more buyers. Not everyone will share your taste and a family with male children probably won’t appreciate your princess pink wall color in the bedrooms. Instead, create ambiance in your home using color for accessories, while keeping the walls neutral

    Give every room a purpose, but don’t get too eccentric. This means using each room as a room and defining each space so buyers can see, for example, the separation between a living area and dining area in an open-concept floor plan.

    Focus on kitchens and bathrooms. The kitchen is considered one of the most important rooms in any home. Make sure the kitchen is staged cleanly to highlight counter space and simply. Don’t distract from great finishes by keeping all the appliances out on the counter. if your kitchen is outdated, consider upgrades. In fact, the kitchen is the first place you should spend money on upgrades. Bathrooms, especially the master, is a close second.

    Keep odors in check. Be subjective and address odorous areas with a quickness. You don’t want your home to be the one that is marked off a buyer’s list as “the smelly house.” Cleanliness is the best way to do this, along with creative scent boosting artifacts like plug-in air fresheners and the like.

    Involve your family. Kids (and sometimes spouses) can make staging and keeping your home “show ready” really difficult, if not impossible. So, one of the best tips available is to involve them in the process. If they understand that their efforts play a big and active role in a major milestone for your family, it will give them a sense of worth and motivate them to keep things tidy. Of course, you may have to continue giving them reminders and you may have to follow behind them with a “white glove” inspection, but it will definitely be easier than starting from scratch.

    Staging and prepping your home for sale can be a lot of work, but in the end, when the offers come rolling in, the reward will be well worth the effort.

Marc A. Hebert’s Money Sense: How much home can you afford and remain financially sound? | New Hampshire

FOR MANY PEOPLE, buying a home is the largest purchase they endeavor upon during their lifetime. While this is often exciting, it can be stressful, especially if you are a first-time buyer. One of the first steps in the process is to decide how much home you can afford. This is an integral step to ensuring your finances are on track to accomplish your goals and you don’t become “house poor.”

There are some rules of thumb that can approximate how much you should allocate toward housing. For example, a “tried-and-true” guide is 25 percent of your income. Of course, there are circumstances where this is not feasible, but it still serves as a guidepost. Below are more detailed steps to hone in on a number specific for you.

First, determine your monthly income and subtract your savings toward retirement and other large or irregular purchases. These should come right off the top to pay yourself first. Then you need to determine the amount of your nonhousing-related expenses. If you aren’t sure what you spend, this could take some time and effort. Keep track of your expenses for a while to give you a solid idea of the numbers. Numerous tracking software systems are available that aid this process. Apps such as Mint, Mvelopes and GoodBudget are free options that are worth exploring to see which one suits your needs. After this step, you should have your monthly income after your savings and nonhousing related expenses.

Before you scour online home listings for your next home based on this figure, consider the operating costs. Houses require maintenance, utilities, real estate taxes and, sometimes, homeowner’s association or condominium fees. Don’t forget the cost of homeowner’s insurance as well. You might even need flood or earthquake insurance. You also might need to increase your life and disability insurance. Do some research to get an idea of what these items can cost because they add up quickly.

Subtract the operating costs from the total housing allocation, and the result will give you a target for your mortgage payment. Using an online calculator and an interest rate estimate, you can work backward to determine the amount of house this payment will afford. If you have less than 20 percent to put down, you will most likely incur private mortgage insurance (PMI) and that should be factored into your monthly payment.

At this point talk with various mortgage brokers and banks. It’s best to shop around and discuss the prequalification process with lenders. They should also be able to give you an estimate of all the other closing costs associated with a home transaction. In New Hampshire we have the real estate transfer tax, half of which is the buyer’s responsibility. In addition, there are appraisal fees, inspections, title insurance, and recording fees, all of which need to be factored into your down payment and cost of acquisition.

Emergencies might happen; you might need a new car in a few years or maybe you incur unexpected medical expenses. Spending down to your last dollar to buy and maintain a house does not make financial sense, not to mention the emotional burden and stress constantly overhanging you when you’re strapped financially.

It’s also important to note there are numerous instances in which it doesn’t make sense to buy a house at all. If you think you might want to move in five years or less, the transaction costs involved with a home sale usually do not favor moving in short periods of time. Also, uncertainty about your income or job prospects might be a reason to pause the purchase. Overall, be patient throughout the process and live within your means.

Ten Tips to Help Make Your Home Safer

1. Hang a bell on the door

The last thing an intruder wants is to be noticed. Hang a bell on the front door and anytime that door moves, the bell will ring, drawing attention. It might be a small thing but any attention grabbing item is a good thing to use to ward off a potential intruder.

2. Shield the windows near doors

It is often advised not to have windows in a door or right next to a door as that makes for easy access to a home. But if you move into a home that already has a window installed or a door with a window there are steps you can take to safeguard your property while avoiding major work. Simply install a protective barrier of quarter-inch Plexiglas over the existing glass. If you attach it properly it can prevent any burglars from breaking the window.

3. Don’t advertise new purchases

It’s great to get a new T.V. or computer but the last thing you want to do is draw attention to your purchases. Avoid throwing your boxes into the trash. Your trash cans are something a would be thief will pay attention to, looking for clues or information that might lead to a big score. Instead take time to dispose of your boxes at a disposal station or recycling center.

4. Set timers indoors

Use timers on lamps and radios or televisions. If you hook up a lamp to a timer, set it to switch on about 30 to 45 minutes before dark to make it look like someone is home. Putting on a TV or radio during different times in the day and in the evening can give the impression that someone is home. Depending on the type of timer you install you can have options of how often you have lights or noise turn on and off in your home. More sophisticated models even have multiple program options.

5. Call on the police – Free Home Inspections

This might seem a little odd but it can be an effective and simple way to help boost your home security. Many municipal police departments offer free home inspections in which an officer walks through your home and gives recommendations to increase your home safety.

6. Stage a robbery

Yup, we said it. Host your own robbery. Have a friend or neighbor (one you trust of course) wander through your house for three minutes. Their goal is to find as many small valuables and possible and remove them from your home. This is a good way to learn what valuables you might not even realize you’ve left lying around. We so often leave our precious belongings out without ever noticing. Once you’ve identified potential losses, take action to hide those items from real burglars. Purchases a safe that bolts to the floor or renting an off-premises safe-deposit box.

7. Secure air conditioning units

Having cool air is great but not if it comes at the price of a break-in. If you install a window unit air conditioner in your home be sure to use an air conditioner bracket, sliding window locks, or corner braces to secure that potential entry from easy access.

8. Eliminate hiding spots

Yes, I know I said this is something that is common but it really is worth repeating. Trim your plants. Make sure shrubbery isn’t too tall or bushy that will provide good hiding space for burgers. Trim your plants to keep them well-maintained but also to keep your home safe.

9. Plant thorny bushes

Planting thorny bushes are not only pretty but they can be quite the deterrent. Not only would they make things uncomfortable for a potential thief, they can also collect DNA from blood and skin. Plus torn clothes can leave evidence from the burglar.

There are many ways to protect your home from burglary. Some are common methods that are well-known and others might be a little unusual to the traditional methods. Bottom line though, make sure you are taking action to make your home a less appealing to someone who might want to take your possessions.

 

10. Install Monitor Security Alarms Systems

Like we said in Tip #1, intruders do not like noise. An alarm provides just that – a lot of noise. Even more effective is a “monitored” security system. These types of systems can verify very quickly whether or not your alarm is a false alarm or a verified intruder. If the alarm is verified, the response of the police if typically much quicker.